Depth of deception: More parts of Warren Ponzi scheme revealed in federal court

Firm acted recklessly in aiding Ponzi scheme, federal judge concludes

WARREN

A federal judge has ordered the marketing firm that worked with the Ponzi scheme Complete Developments LLC of Warren to pay more than $2.2 million for ignoring warning signs that Kevin and Keelan Harris of Warren and Canadian Karen Starr ran a $23 million fraudulent scheme.

Among the biggest warning signs was that the marketers knew a letter written in April 2007 by former Certified Public Accountant Paul J. Hawkins of Warren wasn’t a professional audit and that Hawkins wasn’t a fully licensed CPA, even though they passed it off to investors as legitimate.

An investigator with the Accountancy Board of Ohio is looking into the actions of Hawkins, who recently told The Vindicator he’s still working as a Warren-area CPA even though his CPA license expired in 2010.

Judge David D. Dowd in Akron federal court ruled Feb. 26 that Patrick Cole and his company, Global Strategic Marketing Inc. of Mississauga, Ontario, is banned from any future trading or marketing activity in commodities such as foreign currency exchange because of its work with Complete Developments LLC (CDL).

He also ruled that Cole and GSM must pay more than $2.2 million in penalties plus interest.

GSM worked with Complete Developments, which had an office in the former electrical workers union hall on Parkman Road Northwest, Warren, for several years starting in 2007 to market CDL’s foreign-currency exchange trading.

Kevin Harris, 49, was sentenced to seven years in prison in 2012 for his role in the enterprise.

His brother, Keelan Harris, 37, is in federal custody, charged with similar offenses.

Starr is indicted also — but has never been located.

No Experience

Neither Kevin Harris nor Keelan Harris had any experience as professional currency traders when they began the business, even though the CDL and GSM advertised Kevin Harris as a “wildly successful” trader.

Investors didn’t become aware until after CDL collapsed that the company carried out almost no currency trading with the $23 million it received from investors, and that the Harris brothers had criminal records.

Documents in the case, filed by the U.S. Commodity Futures Trading Commission in 2010 against the Harris brothers, Starr, Cole and others, resulted in an earlier finding that the Harris brothers and Starr be banned from future trading activity and repay $23 million in restitution to about 400 investors, most of them from Toronto, Canada.

But in a Feb. 26 judgment entry, Judge Dowd ruled that GSM solicited more than 200 individuals to invest in CDL and received $1,146,399 in commission despite obvious red flags suggesting the scheme was fraudulent.

The judge mentioned a March 2007 trip to CDL’s offices in Warren, where GSM officials intended to check the validity of CDL’s claims about safeguards in place to protect investors’ money.

One such guarantee was that no more than 20 percent was at risk. But the trip was planned for a weekend, when banks and government offices would be closed. The trip also occurred after GSM had begun marketing CDL’s investments.

And, much of the information GSM obtained came from Kevin Harris without verifying its accuracy, “not even an Internet search or review of publicly available records – which would have revealed that the Harris brothers and Starr had criminal records involving fraud and dishonesty,” Judge Dowd said.

Kevin Harris had done prison time for arson and theft. Keelan Harris had done prison time for credit card fraud and Karen Starr had been convicted of fraud.

GSM and CDL officials held an “Open Day” at CDL’s offices in Warren in April 2007 to meet potential local investors and a bus load of potential Toronto investors.

Speakers were the Harris brothers, Starr and Cole and two city officials — Mayor Doug Franklin, then safety-service director; and Mike Keys, community development director.

Some investors would later say the meeting gave them the impression that the Harris brothers were “endorsed” by city officials and community members.

Persuasion

“Honestly, we were quite bowled over by the endorsement that Kevin got from these persons,” court documents say, citing an investor.

Cole likewise testified in depositions that the “glowing character references” given to Kevin Harris persuaded him of Kevin Harris’ good character.

Franklin said last week that neither he nor Keys spoke at the meeting, and he would not have given an endorsement to Kevin Harris or his business because he knew of Kevin Harris’ criminal background.

“I was invited [by Keelan Harris] just to listen to the business model, not to present Mr. [Kevin] Harris or his business interests. I was there to listen, not to say anything,” Franklin said, adding that he did not invest.

He was aware there were Canadians in attendance, and his impression was the Canadians were there to sell him on CDL, not the other way around. In addition to the investment business, the Harris brothers also were working on other Warren-area business ventures, Franklin said.

He noted that the meeting was about the time many local Delphi Packard Electric workers were receiving buyout checks, and some invested that money in CDL.

One Canadian investor who did not attend the meeting in Warren and spoke on condition his name not be used, said he placed most of his trust in Cole and his company.

“Most of the weight was given to the phrase, ‘We’ve done our homework,’” he said. “GSM consists of professionals in the accounting and computer science fields. With these two professions, why wouldn’t we believe GSM was best suited to look into verifying things?”

‘At Least Reckless’

Judge Dowd said, “By representing to potential investors that they had done their ‘homework’ and taken ‘all precautions’ without conducting any due diligence or independently verifying the accuracy of its representations to potential investors, GSM’s conduct was at least reckless.”

As for the audit, GSM was “at least reckless” in failing to notify investors once it learned that Hawkins was not a fully licensed CPA at the time he wrote a two-page audit letter, the ruling said.

The letter, which GSM gave to potential investors, said Hawkins had conducted a “validity audit” using “unrestricted access to company records,” and it showed that no more than 20 percent of investor funds were at risk, and CDL was “not a Ponzi scheme.”

But GSM learned after distributing the audit to potential investors that Hawkins’ CPA license had lapsed — but did not notify investors of that information, the court said.

Faith Ottavi, investigator with the Accountancy Board of Ohio, said Hawkins’ “lapsed” license status in 2007 allowed him to advertise himself as “CPA, inactive,” but that is not how the letterhead reads that contains the audit information.

That alone could be a violation of Ohio law, Ottavi said, but if he continues to indicate that he is a CPA now, that is another potential violation because his CPA license expired Jan. 1, 2010.

At the beginning of a phone conversation with The Vindicator recently, Hawkins said: “I’m a CPA and all that, but I’m getting to the point where I’m hanging it up.” He added he does taxes and a few small accounts.

When asked about the CDL letter in 2007, Hawkins said he thought CDL was legitimate when he conducted the “audit,” but things “got out of control” after that.

Feels bad

He said he feels bad for the money investors lost in CDL but also feels bad “for what happened to Kevin,” who he said he’s known for many years and always thought was “pretty straightforward.”

The information he used to conduct the “audit” came from phone numbers for people in Atlanta and the Carolinas that Keelan Harris gave him, he said.

Judge Dowd said GSM wanted Kevin Harris to hire a well-known accounting firm to establish that CDL was not a Ponzi scheme, but Kevin Harris said that would be too expensive and had retained a local CPA.

Cole said he “confronted Kevin Harris with the fact that Paul Hawkins’ audit was not what we wanted or what CDL needed to demonstrate credibility,” the ruling says.

“Nevertheless, there is no fact dispute that GSM not only acquiesced to an audit by Paul Hawkins, but did nothing to investigate Hawkins’ credentials or familiarity with issuing an audit letter even though GSM had in-house expertise because one of its principals was a chartered accountant in Canada,” the ruling said.